Isiah 1:17-
Learn to do well. Seek justice, Relieve the oppressed, Judge the fatherless, Plead for the widow.

Tuesday, February 07, 2012

Gold....

I feel awkward attempting to explain some rough understanding of economics but luckily my mother is a banker so therefore there were some rough concepts that she could corroborate. If you are even more of an economics geek feel free to challenger my conclusions!

So I was watching this episode of Pawn Stars ("Buy the Book" aired on June 6, 2011) recently where an older gentleman was looking to sell a 1930s Lincoln automobile. The Harrisons and this man just weren't coming together on a price until Rick Harrison just outright asked what this gentleman wanted to make a deal. What he wanted was some gold.

They made a deal for the right price but with gold as part of the deal. So Rick Harrison explains that he can't exchange gold for the car. What he did offer was cash for the car and then gold for the cash.

It wasn't explained during the course of the episode why Rick Harrison arranged the deal in that fashion. Although I do figure that this may have been a tax issue for his pawn shop at the very least. There are probably some business things going on there too but with all that gold basically all Eagles and Krugerrands gold coins, the old gentleman trading his antique car made out quite well.

Then it brought back some history I've learned over the past few years. Once upon a time America was on the gold standard and that determined the value of the dollar. In the Great Depression, the Roosevelt administration wanted to buy/confiscate all gold in order to devalue the dollar. I suppose in this way they wanted to stop people from trading gold/silver and affect the value of the dollar. In any case by the 1970s, America was no longer on the gold standard and the dollar is currently a fiat currency. The value of the dollar is according to the interest rates set by the Federal Reserve.

I also thought about an executive order signed by President Franklin D. Roosevelt. In 1933 this executive order criminalized the possession of gold by individuals, corporations, associations or partnerships. This executive order was replaced by the Gold Reserve Act in 1934. That legislation effect made gold clauses in private contracts illegal and they were necessary in order to protect against he US Government devaluing the currency. Although now it's legal to possess, purchase, and trade for gold.

Also, I look forward to the day when I can purchase gold so that I can use it to trade or sell. Gold is a good investment in these uncertain times. Even better it would be nice to store them in a safe deposit box at a bank for safe keeping.